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Will you use your home as your pension?

Will you use your home as your pension?

Category: Pensions

Updated: 02/08/2016
First Published: 02/08/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Your home may be your biggest asset, but will you actually use that asset to fund retirement? Despite the growing popularity of equity release and the oft-cited benefits of downsizing, it appears that the majority of homeowners don't see their home as a source of retirement income.

Research by Aegon found that 74% of homeowners would only use their home for retirement income as a last resort, or don't consider their home a source of income at all. Conversely, just 4% see their home as a main source of income in later life, showing that the vast majority are focusing on alternative means to fund their retirement.

Given that over half (53%) of homeowners want to leave their home to their loved ones, it's little wonder that so few want to use it to their own economic advantage. At the same time, many are relying on their own parents for a later life income boost, with 21% hoping to use an inheritance to help fund their retirement.

Steven Cameron, pensions director at Aegon UK, said the research shows that "people view the value in their home and the funding of their retirement very separately", adding it's encouraging that most don't see the equity in their home "as a silver bullet to solve a lack of pension saving… with the right planning and saving behaviours, it can probably be avoided".

However, this in itself highlights the need for effective planning. Those who don't plan ahead and realise that their house is their most valuable asset "may be forced into making some very difficult decisions", added Steven, so if you don't want to be put in that situation, forward planning is key.

Indeed, those who haven't sufficiently planned may be forced to use their home to fund their retirement, as at a push, 69% of respondents said they'd look to downsize in order to release sufficient equity. This was far preferable to renting out a room (3%) or moving in with family (3%), and just 5% said they'd be happy to move into a retirement home. Without suitable planning, these options could become closer to reality.

It's also important to point out that relying on the bank of Mum and Dad in the form of an inheritance isn't ideal, either. This could be a "risky strategy", said Steven, as inheritances are increasingly being eaten up to fund long-term care, so having your own plans in place to secure a retirement income is vital.

This means you'll need to build your own pension, be it through a workplace scheme, a private pension or even a long-term savings vehicle such as an ISA – or ideally, a combination of the above. That way you'll hopefully be able to secure a retirement income that can help you enjoy your post-work years, and there'll be no need to rely on your property for income – unless of course you want to.

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